How can I get started investing in stocks and bonds? How can I be successful in the stock market?

Hi Anina-

I don't think there is a short all encompassing answer to your question but I will say a few things.

1) Build a fundamental understanding of finance and investing. You can do this by reading a variety of books on investing, reading Warren Buffet's shareholder letters (www.berkshirehathaway.com) etc. You can also go on Investopedia.com and find helpful answers to many finance topics. You should also have a general idea of what information financial statements provide as there is an income statement, balance Sheet and statement of cash flows. You can also search on youtube for videos describing the basics of investing in stocks and bonds. Remember, when you own a bond you are lending a company money and they agree to pay you interest as well as your money back. With a stock, you own a percent of the entire company. You have more upside, but if the company files for bankruptcy you will likely lose your investment. With a bond, you have contractual rights to some of the assets of the company and will be able to recover some of your initial money lent (i.e. generally, bonds have less upside, but also less downside).

2) Research a business that you find interesting and try to understand how it works. How do they make money? What are their products? What are its advantages and disadvantages? How much competition is there? Do you think it is a good business, why or why not?

3) Try to value the business and understand the ways businesses are valued. When you invest in a business you are giving your money to a corporation in exchange for cash flows. With a bond, a company agrees to pay you a contractual interest payment as well as your original investment back when the bond matures. In the case of a stock, you have ownership of cash flows after all expenses are paid (sometimes referred to as free cash flow). These cash flows may be paid to you as a dividend or the company may retain this cash flow for investment in their business. A pillar of investing is trying to forecast the amount of cash flow the business will produce and whether you can own that stream of future cash flows at some price that provides a good return. What makes investing difficult is that often you are trying to forecast what a business will earn many years into the future. This can be very difficult. Consequently, you want a return high enough to compensate you for the risk that something in the business changes. What you can expect as a return will also depend on the riskiness of your investment. Generally, bonds are less risky than stocks. And generally, very large stable companies (think Proctor & Gamble) are less risky than a biotech company.

The best advice I can provide, is to read as much as possible on the subject,start researching companies and build a foundation of knowledge. This will take time. Investing can be very difficult and many professional investors will under-perform low cost index funds over time.

I hope this helps. If you have more specific questions please let me know as your question covers a lot of information.

9 people out of 10 are lousy at picking stocks -- and includes me. Believe me, I tried. But I DO know about investing and that has paid off very nicely. I became a stock broker and did that for 28 years before I retired to do what I love most, which is photography.

But the secret to earning a living as a broker is having a broad knowledge of EVERYTHING and being able to explain things to others. The difficulty is that, in the beginning, you have nobody to talk to and no track record to brag about. And, secondly, it's probably more difficult to start today than it was when I started. I cold-called my brains out for two years, all the while picking up accounts from other neophyte brokers who washed out of the business. It's tough.

Probably the best way to build a business in investing is to be a joiner. You have to have people to talk to and you can best find them by being active in social, political, religious, sports and leisure groups. And you can best prepare yourself to become someone people turn to for advice by knowing as much history, economics and psychology as possible.

So, it's a great way to make a terrific living but a really difficult business to get a start in. My advice is to get a liberal arts college degree. It doesn't make much difference what your major is. Learn everything you can about as many things as you can, join everything, be helpful to as many people as you can and then get a job as a broker. Look at the Edward Jones company. I never worked for them but I think they do things right.

Let me know if I can help in the future.

Answering your previous question: "If 9 of 10 people..."

My answer wasn't clear. I meant to say that 9 of 10 people are not very good at picking stocks. But there are other ways to invest, the best is probably to have someone else manage your invested money. I recommend using mutual funds, which are probably the cheapest (regarding fees) and have long track records.

But this doesn't mean you shouldn't study the whole idea of investing because there are managers (and funds) of every type available for you, from the highest risk, exotic strategies to the slow but comparatively steadier long-range investments.

It's important to know how stocks are priced: by investors looking for a company they can buy at today's price and sell sometime in the future for more. Prices are usually based on what a company earns and investors look for companies whose earnings in the future they believe will be higher. The faster those earnings are believed to be growing, the higher investors will be willing to pay for the stock, keeping mind the probabilities that those beliefs will actually pan out.

Mr Fisher's advice (above) is excellent. Michael

If you are looking for a fundamental understanding of investing, start small. Your library should have some "investing for dummies" books, or the like. One book that I have read through the years that was helpful was "Pass the Series 6" by Robert Walker. The series 6 is a basic investment licensed but it covers a pretty broad range of topics, and is designed as a basic licensed. The series 7 is helpful, but a lot more esoteric. So, studying "Pass the 6" will help with understanding stocks vs. bonds, IPO's, margin, etc. etc.

As far as where to go to place trades, there are a number of places online that allow you to trade for free, or very low costs while you are building out your investment portfolio. Good Luck!